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PARTNERSHIP  AND  PRIVATE 
CORPORATIONS 

One  of  a  Series  of  Lectures  Forming  a  Part  of  the  Course  in  Law 


ALBERT  E.  WILSON,  A.  B.,  A.  M.,  LL.  B. 

Professor  of  Partnership  and  Private  Corporations 


E  INTENSION 


(NON-RESIDKNT  INSTRUCTION) 

CHICAGO 


PARTNERSHIP  AND  PRIVATE 
CORPORATIONS 


ALBERT  E.  WILSON,  A.  B.,  A.  M.,  LL.  B. 

Professor  of  Partnership  and  Private  Corporations 


INTENSION  I  INIVERSITY 


\SBLP-INSTKUCTION  UNDER  EXPERT  GUIDANCE) 

CHICAGO 


1912- 


Copyright,  1912, 

LASALLE  EXTENSION  UNIVERSITY 


Introduction  to  the  Study  of 

PARTNERSHIP  AND  CORPORATIONS 

BY 

ALBERT  E.  WILSON,  A.  B.,  A.  M.,  LL.  B. 


Partnership. 

The  law  of  partnership,  with  but  few  exceptions,  is  the  law 
of  contracts  and  agency.  A  knowledge  of  these  two  subjects 
will  explain  practically  every  characteristic.  The  foundation 
of  a  partnership  is  an  agreement ;  its  operation  is  an  exposition 
of  the  law  of  agency.  Certain  individuals  come  together  and 
agree  upon  a  certain  way  of  doing  a  joint  business.  A  written 
agreement  is  usually  drawn,  in  which  their  respective  rights  are 
defined.  The  agreement,  however,  may  be  oral. 

Unlike  the  case  of  a  corporation,  the  state  has  nothing  to  do 
with  the  creation  of  partnerships,  although  the  agreement  is 
sometimes  recorded.  No  new  thing  is  created  by  the  agree- 
ment. The  individuals  are  as  much  individual  as  before,  in  the 
eye  of  the  law.  They  have  merely  created  for  themselves  a  new 
and  particular  set  of  duties  each  to  the  other,  which  their  former 
relations  did  not  give  rise  to. 

When  sued  the  firm  is  brought  into  court  not  as  a  firm  but  as 
individuals  doing  business  under  a  certain  name.  If  a  member 
of  a  firm  dies,  the  firm  automatically  is  dissolved,  its  affairs 
closed  up,  and  a  settlement  of  the  interests  of  the  deceased  is 
made  with  his  heirs  and  personal  representatives.  If  a  person 
desiring  to  join  an  existing  partnership  buys  out  the  interest 
of  one  of  its  members  he  does  not  thereby  become  a  partner. 
The  consent  of  the  other  partners  must  be  first  had.  If  this 
consent  cannot  be  obtained  the  firm  must  dissolve  and  the  in- 
terest acquired  by  the  would-be  member  must  be  ascertained 
and  turned  over  to  him.  Whereas,  in  a  corporation  the  death 


4  ALBERT    E.    WILSON 

of  a  member  affects  in  no  way  the  existence  of  a  corporation; 
and  any  individual  who  is  able  to  legally  acquire  title  to  a  ma- 
jority of  its  shares  may  carry  on  its  business  as  suits  his  fancy. 
As  the  corporate  entity  is  the  fundamental  essential  of  a  cor- 
poration, so  the  duty  of  absolute  good  faith  is  the  cardinal  prin- 
ciple of  a  partnership.  Not  that  good  faith  is  not  always  re- 
quired by  the  law  in  dealings  between  man  and  man;  but  in 
partnerships  good  faith  is  required  in  a  much  higher  degree 
and  in  many  more  particulars  than  it  is  called  for  by  the  ordi- 
nary dealings  of  men.  Partners  in  matters  of  their  mutual 
business  can  never  be  said  to  deal  at  arm's  length.  Their  rela- 
tion is  intimate  and  personal  in  character.  They  have,  by  their 
agreement,  so  placed  their  affairs  and  fortunes  in  each  other's 
keeping  that  constant  association,  absolute  good  faith,  and  per- 
sonal confidence  must  exist.  How  different  from  a  corporation, 
where  ordinarily  the  stockholders  rarely  meet  each  other;  are 
but  slightly,  if  at  all,  acquainted;  and  where,  when  they  do 
meet,  they  are  very  likely  to  engage  in  bitter  controversies  over 
matters  of  policy  or  in  desperate  struggles  for  the  acquisition 
of  a  greater  power  in  the  management  of  the  common  business. 

Intimate  association  and  friendly  co-operation  demand  limited 
members.  Partners  are  never  many:  "Many  men  of  many 
minds"  will  disrupt  any  partnership.  It  is  a  matter  of  busi- 
ness history  that  partnerships  which  begin  small  and  keep  ad- 
mitting others  to  an  "interest  in  the  business,"  shortly  split 
up  into  smaller  associations.  The  successful  partnership  rarely 
has  more  than  three  or  four  partners.  Six  or  seven  partners 
are  unusual.  A  greater  number  is  almost  unheard  of.  Fewer 
individuals  interested  means  smaller  aggregate  capital  invest- 
ed. And  herein  lies,  no  doubt,  a  partial  explanation  of  the  ina- 
bility of  partnerships  to  handle  the  gigantic  business  of  today. 
But  a  far  more  potent  factor  is  also  present,  that  is,  the  liabil- 
ity of  each  partner  to  the  firm's  creditors. 

By  the  term  "liable  as  partners"  is  meant,  that  each  partner 
is  personally  liable  to  creditors  for  all  the  debts  of  the  partner- 
ship. This  individual  liability  may  be  regarded  as  the  charac- 
teristic of  partnerships  next  in  importance  to  absolute  mutual 
good  faith.  If  all  the  partners  but  one  should  become  insolvent, 


PARTNERSHIP    AND    CORPORATIONS         5 

the  one  solvent  partner  would  have  to  pay  all  the  debts.  He  may 
have  had  nothing  to  do  with  incurring  the  indebtedness.  He  may 
have  advised  against  it  and  opposed  it  strenuously.  Neverthe- 
less he  would  be  liable  if  it  had  to  do  with  the  business  of  the 
firm.  It  is  true  that  if  one  partner  is  compelled  to  pay  the  firm's 
debts,  he  may  have  contribution  thereafter  from  the  other  mem- 
bers. That  is,  the  others  may  be  compelled  to  reimburse  him 
for  what  he  has  paid  over  and  beyond  his  share.  But  if  for 
any  reason  the  other  partners  cannot  pay,  he  must  bear  the  bur- 
den alone. 

A  third  characteristic  of  a  partnership  is  the  mutual  agency 
that  the  relation  creates.  Each  partner  is  the  agent  of  the  other 
partner  or  partners  in  everything  properly  within  the  scope  of 
the  partnership,  unless  by  agreement,  made  known  to  the  public 
with  which  it  deals,  the  firm  has  specifically  fixed,  for  each  mem- 
ber, the  field  of  his  activities.  Such  a  limitation,  however,  is  not 
usual  and  all  legal  presumptions,  where  third  parties  are  con- 
cerned, are  against  any  such  limitation.  Between  the  partners 
themselves,  their  partnership  agreement  would  be  conclusive. 
It  would  only  be  necessary  to  offer  sufficient  proof  of  the  agree- 
ment if  it  was  oral;  or  to  interpret  it,  if  it  was  written.  But 
third  parties  have  a  right  to  presume  a  mutual  agency  in  the 
absence  of  sufficient  notice  to  the  contrary. 

A  limitation  that  is  not  uncommon  is  that  which  touches  not 
the  liability  itself,  but  the  extent  of  it.  You  have,  no  doubt, 
frequently  seen  under  a  firm  name  the  statement  that  certain 
persons  are  " general  partners"  and  certain  others  are  " limited 
or  special  partners."  "General  partners"  are  those  who  are 
liable  in  any  event  and  to  an  amount  limited  only  by  the  firm's 
debts;  while  "special  partners"  are  those  who  are  only  liable  at 
all  under  certain  conditions  (this  is  very  rare)  or  who  are  liable 
for  the  firm's  debts  only  up  to  a  certain  amount. 

If  it  can  be  proved  that  a  creditor  had  the  fact  brought  home 
to  him  before  he  became  a  creditor  of  the  firm,  that  certain  mem- 
bers were  "special  partners,"  he  is  then,  though  not  in  all  cases, 
precluded  from  enforcing  his  claim  against  such  partners  be- 
vond  the  limitation  thev  have  fixed. 


6  ALBERT    E.    WILSON 

"Silent  partner"  is  a  term  frequently  heard.  It  is  not  a  legal 
term,  but  is  one  that  the  courts  have  often  dealt  with.  An  able 
business  man  without  capital  may  obtain  financial  backing  of 
another  and  share  with  him  profits  earned.  If  there  are  profits 
no  difficulty  can  arise  except  between  the  partners,  in  which  case 
their  agreement  will  control.  If  there  are  no  profits,  the  ' '  silent 
partner"  is  sought  by  the  creditors.  Too  frequently  the 
"silent"  and  usually  solvent  partner  tries  to  hide  behind  the 
insolvent  partner.  His  name  not  having  appeared  as  a  member 
of  the  firm,  it  is  often  no  easy  matter  to  determine  whether  or 
not  he  should  answer  to  the  creditor.  On  the  one  hand  it  is  said 
that  the  creditor  cannot  be  regarded  as  having  extended  credit 
to  the  firm  on  the  faith  of  a  membership  of  which  he  is  ignor- 
ant. On  the  other  hand  it  is  said  that  a  partner  cannot  be  a 
partner  for  profits  only. 

With  the  exposition  that  the  text  will  give  on  the  questions 
of  good  faith,  partnership  liability,  agency  and  the  interpreta- 
tion of  the  fundamental  agreement,  the  student  will  find  the 
subject  of  partnership  unusually  free  from  complexity,  the  diffi- 
culties lying  for  the  most  part  in  complications  arising  from 
doubtful  or  involved  sets  of  facts. 

Private  Corporations. 

In  these  days  of  great  corporations,  whose  operations  are  so 
minute  as  to  enter  into  the  personal  life  and  happiness  of  the 
humblest  citizen,  and  so  comprehensive  as  to  control  the  desti- 
nies of  nations  and  the  progress  of  civilization,  it  is  interesting 
to  note  that  condemnation,  not  gratitude,  is  characteristic  of  the 
attitude  of  the  general  public  toward  them.  From  all  parts  of 
the  land  come  cries  for  regulation,  suppression,  annihilation, 
and  prosecution  of  corporations.  No  annoyance  is  so  small,  no 
crime  is  so  great  that  corporations  may  not  be,  and  in  most 
cases  are,  held  responsible  directly  or  indirectly  for  their  per- 
petration. The  sense  of  oppression  from  these  great  mercan- 
tile giants  is  so  universal  that  it  may  be  said  to  be  the  motive 
behind  nine-tenths  of  the  legislation  now  being  considered  in 
Congress  and  in  the  various  state  legislatures. 


PARTNERSHIP    AND    CORPORATIONS         7 

In  consequence  of  this  widespread  agitation,  every  person, 
educated  or  uneducated,  knows  something  about  corporations. 
Unfortunately  the  most  that  is  known  is  evil.  In  fact,  in  many 
minds  naught  but  evil  is  known  of  corporations.  This  knowl- 
edge of  evil  is  nourished  and  developed,  if  not  implanted,  by  po- 
litical agitators  traveling  under  various  colors,  but  having,  in 
many  instances,  but  one  end  in  view,  viz.,  their  own  aggrandize- 
ment. Results  are  beginning  to  appear,  and  these  results  are 
not  always  the  ones  to  be  desired.  At  the  present  time,  those 
who  have  had  most  to  do  with  the  recent  prosecutions  of  cor- 
porations are  far  from  satisfied  that  their  course  has  been  the 
right  one.  Not  that  they  are  listening  to  the  cry  of  "big  busi- 
ness" of  "let  us  alone."  The  highwayman  and  the  pickpocket 
utter  a  similar  cry  and  for  a  similar  reason.  It  disturbs  their 
business.  What  has  given  pause  to  thinking  men  is  the  fact  that 
their  most  drastic  methods  have  been  least  effective.  One 
menacing  head  is  stricken  off  only  to  be  replaced  by  two  others 
as  dangerous  as  the  first. 

Statesmen  have  also  found  that  there  are  two  kinds  of  cor- 
porations, the  good  and  the  bad,  and  that  it  is  almost  impossible 
to  distinguish  them.  The  government  is  dismayed.  It  is  in 
doubt  as  to  whether  or  not  its  whole  course  has  been  wrong. 
The  laws  calling  for  the  dissolution  of  corporations  are  ineffect- 
ive, and  they  can  only  be  made  effective  by  destroying  good  cor- 
porations with  the  bad.  This  is  recognized  to  be  undesirable. 
The  only  other  course,  unless  we  let  them  alone,  is  to  regulate 
them.  But  how?  This  is  the  great  political  and  economic  prob- 
lem of  the  day.  There  is  such  a  diversity  of  opinion  upon  it 
that  but  one  course  seems  to  be  open :  ' '  Appeal  to  the  People. ' ' 

This  course  may  be  the  best  or  the  worst.  It  all  depends  upon 
one  thing,  education.  If  the  electorate  act  thoughtfully  and  in- 
telligently the  remedy  will  be  found  and  will  be  effective.  If 
ignorance  controls,  and  passion,  envy,  and  hatred  sway  the  pub- 
lic mind,  disaster  and  consternation  alone  will  result.  It,  there- 
fore, is  most  proper  that  the  private  citizen,  young  or  old,  law- 
yer or  layman,  should  set  himself  seriously  to  the  study  of  cor- 
porations. It  is  his  duty  as  a  citizen  to  fit  himself  to  assume  the 
grave  responsibilities  that  will  come  to  him  in  the  near  future. 
It  is  his  duty  as  an  American  to  maintain  before  the  world, 


8  ALBERT    E.    WILSON 

the  ability  of  his  country,  to  meet  and  handle  sanely,  wisely  and 
intelligently  this  problem  as  it  has  other  great  political  and 
economic  problems. 

As  has  been  said,  the  most  that  the  average  citizen  knows  of 
corporations  and  their  methods  is  evil.  Perhaps  many  of  those 
who  read  this  course  of  study  will  approach  it  from  a  hostile 
rather  than  a  friendly  point  of  view.  This  is  to  be  avoided. 
The  lawyer  is  an  incipient  judge,  and  the  citizen,  in  a  demo- 
cratic government  such  as  ours,  as  the  final  arbiter  of  all  law, 
should  approach  its  study  with  an  open  mind. 

With  a  view  to  diverting  the  attention  of  those  whose  study 
of  corporations  has  been  slight  and  whose  knowledge  may  be 
largely  of  the  evil,  it  is  proper  to  point  out  as  you  enter  into 
this  field  of  study,  that  the  advocates  and  supporters  of  corpora- 
tions have  a  reason  for  the  faith  that  is  in  them.  Corporations 
have  been  and  are  today  great  public  benefactors.  They  are 
business  agencies,  the  power  and  utility  of  which  far  surpass 
that  of  any  machine  that  was  ever  invented — greater  than  the 
steam  engine,  the  telegraph,  the  telephone,  for,  lacking  the 
needed  development,  exploitation,  and  distribution,  these  won- 
derful contrivances  could  accomplish  little  and  benefit  few. 

For  instance,  consider  the  railroad.  Have  you  ever  stopped 
to  consider  what  it  costs  to  build  a  railroad"?  We  all  read  of  the 
bonded  indebtedness  of  railroads  with  a  curious  lingering  over 
the  eight  and  nine  figures  that  take  up  so  much  horizontal  space 
on  the  page  we  are  reading.  But  few  of  us  realize,  or  can  rea- 
lize, what  those  figures  mean.  Suppose  you  are  the  unquestioned 
owner  of  patents  that  cover  every  part  of  a  locomotive;  of  the 
cars  it  draws,  the  track  it  runs  over,  and  the  roadbed  on  which  it 
rests.  Your  monopoly  is  complete.  No  railroad  can  be  built 
or  operated  without  your  consent.  Suppose  also  that  your 
knowledge  of  these  appliances  is  essential  to  their  correct  con- 
struction and  successful  operation.  Suppose  also  that  corpora- 
tions are  unknown.  How  would  you  raise  the  money  to  build 
your  road,  and  how  would  you  operate  it  after  you  built  it? 
Do  you  suppose  that  the  public  would  come  by  the  thousands  to 
entrust  their  money  to  your  personal  care,  to  be  disbursed  by 
you  as  you  saw  fit,  and  the  income  from  its  investment  to  be 


PARTNERSHIP  AND  CORPORATIONS    9 

dependent  upon  your  care  of  it?  Could  any  agents  of  yours, 
however  clever,  be  able  to  persuade  large  and  small  investors 
alike  to  put  their  money  into  an  enterprise  over  which  they 
had  no  control  and  in  which  they  had  no  more  evidence  of  inter- 
est than  your  personal  obligation?  And  yet  if  you  could  not 
get  many  interested,  each  in  proportion  to  his  means,  you  could 
never  accumulate  the  vast  sum  your  project  would  require.  For 
what  man  could  you  find  who  could  personally  give  you  the 
$10,000,000  you  required,  or,  if  he  did  have  such  an  amount, 
would  be  willing  to  risk  it  all  in  a  single  venture?  Yet,  without 
such  an  enormous  amount,  your  wonderful  patents  could  not  be 
advantageously  utilized. 

But  corporations  could  and  did  handle  such  a  condition.  The 
patents,  locomotive,  cars,  and  equipment  became  the  property 
of  a  corporation.  In  this  corporation  each  investor,  however 
small,  owned  a  fixed  ascertainable  interest.  In  the  management 
of  the  property  he  had  a  voice.  In  the  distribution  of  profits  he 
had  a  share.  The  government  itself  created  the  corporation, 
limited  and  defined  its  powers,  and  protected  the  interests  of  its 
members.  Through  the  medium  of  these  corporations  were  de- 
veloped the  resources  of  the  country  and  the  inventive  genius 
of  the  people.  Less  than  fifty  years  ago  there  was  no  trans-con- 
tinental railroad;  today  there  are  half  a  dozen.  Fifty  years 
ago  it  took  three  months  to  go  from  New  York  to  San  Fran- 
cisco; today  it  takes  four  days.  One  hundred  and  fifty  years 
ago  a  man  made  his  will  and  departed  from  the  bosom  of  his 
family  amid  much  weeping  and  lamentation,  when  undertaking 
a  journey  of  a  couple  of  hundred  miles;  today,  on  the  eve  of 
such  a  journey,  he  calls  up  his  home  from  his  office  and  says  he 
will  be  back  for  dinner  tomorrow. 

Take  the  industrial  field.  Sixty  or  seventy  years  ago  they 
began  to  manufacture  steel.  It  cost  the  purchaser  ninety  dollars 
a  ton.  Today  an  infinitely  superior  steel  can  be  bought  under 
$30  a  ton.  Before  the  Civil  War,  and  even  afterwards,  we 
burned  oil  for  illuminating  purposes.  We  were  in  constant  dan- 
ger for  fear  the  crudely  refined  liquid  would  explode,  and  were 
far  from  satisfied  with  the  quality  of  the  light  obtained.  Yet 
we  then  paid  over  25  cents  a  gallon,  where  now  we  pay  10  and  12 
cents  for  a  vastly  superior  product. 


10  ALBERT    E.    WILSON 

And  so  instances  might  be  multiplied,  without  making  any 
clearer  the  fact  that  all  these  things  became  possible  not  be- 
cause of  the  excellence  of  any  one  thing  in  itself,  nor  because  of 
the  genius  that  discovered  or  evolved  it;  but  in  the  corporate 
method  of  doing  business,  that  furnished  the  funds  to  exploit,  to 
develop,  to  experiment  with,  that  systematized  the  management 
of  the  industry,  and  economized  rigidly  or  spent  freely  with 
equal  indifference  to  all  but  the  one  goal — "results." 

The  growth  of  our  country  is  the  growth  of  corporations. 
From  a  position  of  minor  importance  among  nations  of  the  sec- 
ond class,  we  have  become  the  leading  producing  and  industrial 
nation  of  the  world.  And  this  marvelous  development  occurred 
in  a  little  over  a  generation  and  has  at  all  times  kept  pace  with 
the  growth  of  the  great  corporations.  However  much  we  may 
condemn  them,  however  great  the  wrongs  their  unparalleled 
growth  has  caused,  we  must  remember  that  ill-considered  laws 
will  accomplish  either  too  little  or  too  much.  In  either  case  the 
result  will  be  serious.  Laws  that  are  too  drastic  either  cannot 
be  enforced  and  thereby  arouse  contempt,  or,  if  enforced,  in  de- 
stroying the  machinery  will  also  destroy  the  prosperity  which 
the  machinery  produces. 

Therefore,  with  eyes  seeing  both  the  good  and  the  evil;  with 
minds  determined  to  preserve  the  one  and  eliminate  the  other; 
and,  above  all,  with  hearts  beating  always  for  the  common  good 
of  all,  let  us  approach  this  absorbing  question.  Perhaps  you 
will  find  that  a  great  deal  has  already  been  done  by  way  of 
eliminating  evil  and  preserving  good.  Perhaps  you  will  decide 
as  many  others  have  already  decided,  that,  though  slow,  the 
evolution  of  the  corporation  has  proceeded  along  the  right  lines. 
Let  us  direct  your  attention  to  certain  steps  that  have  already 
been  taken,  so  that  you  may  judge  whether  they  should  con- 
tinue. 

It  is  essential  first  to  get  a  clear  conception,  .legally  speaking, 
of  what  a  corporation  is.  Chief  Justice  Marshall  said:  "A 
corporation  is  an  artificial  being,  invisible,  intangible,  and  exist- 
ing only  in  contemplation  of  law."  It  is  an  entity,  a  thing  exist- 
ing separate  and  apart  from  its  members.  It  is  not  physical  or 
material.  To  make  clearer  this  creature,  this  individuality,  so 


PARTNERSHIP    AND    CORPORATIONS       11 

to  speak,  consider  how  it  comes  into  existence.  A  body  of  per- 
sons come  together  and  ask  the  State  to  constitute  them  a  cor- 
poration. The  State  demands  that  certain  formalities  be  first 
gone  through  with  and  then  does  what?  It  performs  an  act 
of  creation.  It  brings  something  into  existence  that  did  not  be- 
fore exist.  If  a  mere  agreement  between  individuals  is  made, 
the  result  produces  a  partnership.  To  produce  a  corporation 
an  act  of  the  sovereign  power  is  necessary.  This  is  performed 
by  the  State  in  granting  a  charter. 

A  partnership  is  a  mere  relation  between  certain  persons  who 
have  agreed  to  act  in  a  certain  manner  toward  each  other.  A 
corporation  is  an  individual,  a  thing,  an  entity.  It  is  born,  cre- 
ated where  nothing  formerly  existed.  It  is  not  the  sum  of  its 
stockholders,  its  directors,  or  its  officers.  It  can  still  exist  whether 
it  has  a  thousand  stockholders  or  but  one.  All  of  its  original 
members  may  die  or  withdraw  and  be  succeeded  by  others,  yet 
the  corporation  is  the  same  corporation  it  always  was.  This 
conception  of  something  having  a  legal  existence  irrespective 
of  that  which  composes  it,  is  difficult  for  most  laymen  and  for 
many  lawyers.  We  are  all  prone  to  think  that  if  one  person 
owns  a  majority  of  a  corporation's  stock  he  thereby  becomes 
the  corporation.  But  in  reality  he  has  no  more  rights  in  the 
corporation  than  any  other  stockholder.  The  affairs  of  the  cor- 
poration must  still  be  conducted  by  its  board  of  directors,  and 
its  by-laws  must  be  obeyed.  A  majority  stockholder  has  no 
more  power  to  bind  a  corporation  by  contract,  unless  properly 
authorized  by  the  directors,  than  has -the  holder  of  a  single 
share.  A  stockholder  may  contract  with  his  corporation,  may 
sue  or  be  sued  by  it  and  in  general,  with  regard  to  corporate 
affairs  and  corporate  property,  may  act  toward  the  corporation 
as  he  would  toward  another  individual. 

This  conception  of  a  corporate  entity  separate  and  apart  from 
its  members  gave  rise  to  peculiar  situations.  Among  them  was 
that  a  corporation,  being  the  creature  of  the  State,  had  no  pow- 
ers except  those  with  which  it  was  expressly  or  impliedly  en- 
dowed by  the  State.  It  could  only  do  those  things  which  it  was 
empowered  to  do.  As  a  machine  made  to  sew  shoes  was  abso- 
lutely incapable  of  forging  steel,  so  a  corporation  created  to 


12  ALBERT    E.    WILSON 

manufacture  clothes  was  absolutely  incapable  of  operating  a 
railroad. 

Pursued  to  its  logical  conclusion,  it  was  formerly  held  that 
the  sovereign  power,  being  law  itself,  could  do  nothing  illegal, 
and  therefore  when  it  conferred  powers  upon  a  corporation  they 
were  of  necessity  legal  powers.  Therefore,  said  the  court,  a  cor- 
poration cannot  commit  a  crime,  because  a  crime  is  an  illegal 
act  and  this  entity  created  by  law  had  not  the  power  to  do  any- 
thing illegal.  Still  further,  a  corporation  was  once  said  to  be 
incapable  of  doing  any  wrong,  and  therefore  it  could  not  be  sued 
in  an  action  of  tort.  The  argument  was  that  a  corporation  has 
no  power  to  do  an  act  not  authorized  by  its  charter,  and,  as  we 
have  seen,  this  is  true  in  a  sense.  However,  the  Courts  construed 
the  word  "power"  to  be  used  in  the  sense  of  " authority,"  that 
although  the  corporation  had  no  right  to  exceed  the  powers  con- 
ferred upon  it  by  the  State,  nevertheless  it  had  the  capacity  to 
do  so ;  and  fhat  if  in  doing  so  it  committed  a  tort,  it  is  as  fully 
liable  as  a  natural  person  would  be  under  similar  circumstances. 

Taking  the  next  step,  it  is  now  held  that  a  corporation  is  also 
liable  for  the  negligence  of  its  servants  or  agents  in  omitting  to 
perform  a  duty  resting  upon  the  corporation.  Thus  it  may  be 
liable  for  negligently  chaining  a  vicious  dog,  through  the  escape 
of  which  third  parties  are  injured.  A  railroad  company  is  now 
liable  for  keeping  its  premises  in  an  unsafe  condition. 

"It  has  been  contended  that,  since  a  corporation  is  merely  an 
artificial  being,  without  mind  or  soul,  it  cannot  commit  those 
torts  which  involve  a  mental  operation,  and  that  it  cannot,  there- 
fore, be  liable  for  malicious  wrongs,  or  wrongs  involving  a  spe- 
cific intent,  such  as  libel,  malicious  prosecution  or  fraud.  It  is 
now  well  settled,  however,  that  the  mental  attitude  of  its  agents, 
like  their  acts,  may  be  imputed  to  a  corporation,  and  that  a  cor- 
poration may  be  guilty  of  malice  in  contemplation  of  law.  Cor- 
porations, therefore,  have  been  held  liable  for  a  libel  published 
by  their  agents;  for  a  malicious  criminal  prosecution;  for  a  ma- 
licious and  vexatious  attachment;  for  conspiracy;  and  corpora- 
tions have  repeatedly  been  held  liable  for  false  representations 
made  by  their  agents.  The  rule  is  well  settled  that,  in  cases  of 
fraud,  a  corporation  will  be  held  liable  whenever  an  individual 
would  be." 


PARTNERSHIP    AND    CORPORATIONS       13 

In  this  same  connection  there  was  developed  what  is  known 
as  the  doctrine  of  "ultra  vires."  .  This  doctrine,  briefly  speak- 
ing, was  that  for  acts  done  beyond  its  powers,  express  or  im- 
plied, a  corporation  was  not  liable.  Its  application  is  chiefly  in 
the  law  of  contracts.  A  contract  ultra  vires  of  the  corporation 
was  held  to  be  absolutely  void,  and  such  is  still  the  law  in  many 
jurisdictions.  Mr.  Justice  Gray  of  the  United  States  Supreme 
Court  said  that  a  corporation  is  not  liable  upon  a  contract  ultra 
vires,  because  of:  "  (1)  The  interest  of  the  public  that  the  cor- 
poration shall  not  transcend  the  powers  granted;  (2)  The  in- 
terest of  the  stockholders  that  the  capital  shall  not  be  subjected 
to  the  risk  of  enterprises  not  contemplated  by  the  charter,  and 
therefore  not  authorized  by  the  stockholders  in  subscribing  for 
the  stock;  (3)  The  obligation  of  every  one  entering  into  a  con- 
tract with  a  corporation  to  take  notice  of  the  legal  limit  of  its 
powers."  This  rigid  position  was  productive  of  much  hardship. 
Modifications  were  at  once  made.  A  distinction  was  drawn  be- 
tween executory  and  executed  contracts.  If  the  ultra  vires  con- 
tract was  executory,  the  other  party  to  it  could  prevent  the  cor- 
poration from  enforcing  it  against  him;  if  it  was  partly  ex- 
ecuted, a  halt  was  called  and  the  party  who  had  received  benefits 
would  have  properly  to  pay  for  them.  And  finally,  where  to 
merely  pay  back  a  thing  of  value  would  not  do  full  justice, 
many  courts  now  hold  that  even  specific  performance  may  be 
compelled. 

Perhaps  the  most  striking  example  of  the  development  of  the 
law  may  be  seen  in  the  enforcement  of  personal  liability  upon 
officers,  directors,  or  stockholders,  under  various  conditions.  In 
many  corporations  the  stockholders  are  personally  liable  for  an 
amount  equal  to  the  par  value  of  their  stock  holdings,  in  addi- 
tion to  any  unpaid  balance  due  on  their  subscriptions  to  those 
stock  holdings.  This  is  notably  true  of  banks.  In  some  States 
directors  are  personally  liable  for  all  indebtedness  incurred  in 
excess  of  the  capital  stock  of  a  corporation.  In  most  jurisdic- 
tions directors  are  personally  liable  to  creditors  for  dividends 
which  they  have  declared  and  paid,  when  there  were  not  suffi- 
cient earnings  out  of  which  they  might  properly  be  declared. 


14  ALBERT    E.    WILSON 

In  Another  direction  we  see  the  recent  laws  passed  by  many 
state  legislatures  and  also  by  the  United  States  Congress,  doing 
away  with  certain  old  common  law  defenses  to  actions  for  per- 
sonal injuries.  These  laws  in  many  cases  provide  for  fixed 
compensation  to  injured  employes,  where  they  have  fallen  by 
the  wayside  and  are  temporarily  or  permanently  incapacitated 
from  performing  their  labors  in  the  great  industries  of  the  coun- 
try. Of  course,  such  laws  apply  to  employers  generally  whether 
they  are  corporations,  partnerships,  or  individuals,  but  the 
great  majority  of  employers  to  whom  they  are  intended  and  to 
whom  they  actually  do  apply  are  corporations. 

It  will  be  seen  from  the  above  that  the  law  has  not  been  stand- 
ing still.  It  is  in  constant  change,  adapting,  enlarging  and  modi- 
fying ancient  principles,  hoary  with  age,  endeavoring  to  fit  them 
to  present  conditions.  Many  believe  it  is  failing  to  do  so;  or 
that  at  least  it  is  doing  so  too  slowly  and  needs  the  assistance 
of  affirmative  legislation.  Perhaps  this  position  is  correct.  In 
any  event,  intelligent  legislation  must  be  founded  upon  the  past. 
And,  therefore,  a  knowledge  of  the  past  is  indispensable.  Edu- 
cation, not  revolution,  is  the  means  to  success.  Like  a  mighty 
army,  which  cannot  move  faster  than  its  slowest  moving  unit, 
so  our  great  country  proceeds  upon  the  path  of  progress  only 
so  fast  as  the  intelligence  of  its  units  increases.  Those  who  run 
on  too  fast  in  the  great  evolution  fall  victims  to  their  own  hardi- 
hood. Like  stragglers  and  undisciplined  guerrilla  bodies  in  an 
army,  they  do  much  harm  and  are  usually  cut  off  and  destroyed, 
often  by  their  own  comrades.  It  is  the  duty  of  the  disciplined 
soldier  and  the  patriotic  citizen  to  advance  only  under  orders, 
only  under  the  law,  obeying  even  if  the  orders  given  or  the  law 
ordained  are  ignorantly  given  or  illy  conceived.  For  thus  only 
is  order  preserved  and  the  dignity  and  authority  of  the  law 
maintained. 


PARTNERSHIP    AND    CORPORATIONS       15 


Nulla  impossibilia  aut  inhonesta  sunt  praesumenda;  vera 
autem  et  honesta  et  possibilia. 

No  things  that  are  impossible  or  dishonorable  are  to 
be  presumed;  but  things  that  are  true  and  honorable 
and  possible. 

— Legal  Maxim 


16  ALBERT    E.    WILSON 


NOTE. 

Students  who  desire  only  a  general  knowledge  of  law  as  an  aid  to 
them  in  business  and  do  not  care  for  a  diploma  are  not  required  to 
answer  the  following  quiz  questions  and  cases.  They  are  required  to 
answer  merely  the  final  examination  questions.  Students  who  are 
studying  for  professional  purposes  and  desire  a  .diploma  at  the  end  of 
the  course  should  answer  in  writing  all  the  following  questions  and 
cases.  The  questions  should  be  answered  without  referring  to  the 
text;  afterward  they  may  be  corrected  by  such  reference. 

The  answer  should  be  written  on  a  typewriter,  or,  if  by  longhand, 
in  ink.  We  advise  the  use  of  a  large-sized,  loose-leaf  note  book,  or 
separate  sheets  of  uniform  size,  rather  than  bound  note  books.  Only 
the  leaves,  securely  clamped  or  fastened  together,  and  not  the  covers, 
should  be  sent  us.  The  paper  should  be  substantial  but  not  too  heavy. 
In  this  way  considerable  unnecessary  postage  expense  will  be  saved. 

It  is  not  necessary  to  copy  the  question  in  each  case,  but  the 
answer  should  be  carefully  numbered  to  indicate  to  which  question  it 
refers.  The  name  and  address  should  appear  on  every  paper. 

The  answers  to  these  questions  should  be  sent  to  us  at  the  com- 
pletion of  the  subject,  and  not  at  the  end  of  each  week's  work.  They 
will  be  examined,  criticised,  graded  and  returned  to  the  student,  and 
should  be  kept  by  him  for  future  reference  and  review. 

A  large  number  of  these  questions  are  actual  cases  that  have  been 
decided  by  the  courts.  When  we  return  to  the  student  his  corrected 
answers  to  these  questions  we  shall  also  send  him  a  digest  of  the  hold- 
ing of  the  court  in  each  of  these  cases,  together  with  the  name  of  the 
case  and  its  citation  in  the  original  report. 

Questions  for  the  final  examination  on  each  subject  will  be  sent  to 
the  student  when  his  answers  to  quiz  questions  are  returned.  Students 
who  do  not  send  in  answers  to  quiz  questions  should  notify  us  when 
they  are  ready  for  final  examination  questions  on  the  first  subject 
and  such  questions  will  be  sent.  Thereafter  the  examination  questions 
on  the  succeeding  subject  will  be  sent  with  each  returned  examination 
paper. 

The  examination  questions  should  be  answered  in  writing,  without 
consulting  the  text,  and  the  answers  sent  to  us.  Thev  will  be  corrected, 
graded  and  returned  to  the  student. 


PARTNERSHIP    AND    CORPORATIONS       17 

OUTLINE  FOR  THE  STUDY  OF  PARTNERSHIP  AND  PRIVATE 
CORPORATIONS,  AND  QUESTIONS  UPON  THE  TEXT.* 


ALBERT  E.  WILSON,  PROFESSOR 


TEXTS:     Partnership,  by  Eugene  Allen  Gilmore,  A.  B.,  LL.B.,  Pro- 
fessor of  Law,  University  of  Wisconsin. 
Private  Corporations,  by  Horace  LaFayette  Wilgus,  S.  B., 
S.  M.,  Professor  of  Law,  University  of  Michigan. 


FIRST  WEEK. 

Monday :      Read  Introductory  Lecture,  by  Professor  Wilson. 
Tuesday:     Read  paragraphs  1  to  12,  inclusive,  of  text  on  Part- 
nership. 

Questions. 

1.  Name  three  tests  by  which  the  existence  of  a  partnership  can 
be  detected. 

2.  H  purchased  a  store  and  employed  0  to  manage  it,  0  to  re- 
ceive 1/3  of  the  profits  for  his  services.    0  advanced  no  part  of  the 
capital  and  was  not  to  be  responsible  for  losses.     0  conducted  the 
business  so  that  the  neighborhood  thought  H  and  0  were  partners. 
Assumpsit  was  brought  by  H  to  recover  the  price  of  goods  made  use 
of  by  O  on  his  individual  account.    0  defended  on  the  ground  that  he 
and  H  were  partners  and  no  recovery  could  be  had  at  law.     What 
judgment " 

3.  A  number  of  men,  the  defendants  in  this  case,  became  mem- 
bers of  an  association  which  required  them  to  pay  Five  Dollars  each 
into  the  treasury,  and  to  pay  such  assessments  as  should  be  levied  pro 
rata,  on  pain  of  being  left  out  of  the  association  and  its  privileges. 
The  purpose  of  the  association  was  to  resist  legally  the  claims  of  a 
patentee.    The  officers  of  the  association  employed  the  plaintiff  to  act 
as  attorney  to  this  end,  and  the  plaintiff  now  sues  the  defendants  jointly 
for  these  services.    Are  the  defendants  liable? 

Wednesday:     Review  paragraphs  1  to  12,  inclusive. 
Read  paragraphs  13  to  21,  inclusive. 


*A  large  number  of  these  questions  are  actual  cases  that  have  been  decided 
by  the  courts.  When  we  return  your  corrected  answers  to  these  questions,  we 
shall  also  send  you  a  digest  of  the  holding  of  the  court  in  each  of  these  cases, 
together  with  the  name  of  the  case  and  its  citation  in  the  original  report. 


18  ALBERT    E.    WILSON 

Questions. 

4.  Explain   fully  the   difference   between   a    corporation   and   a 
partnership. 

5.  A  partnership  of  10  members  agrees  to  pay  certain  expenses 
of  a  corporation.     One  of  these  expenses  is  the  services  of  an  official 
in  procuring  a  right  of  way.    X,  who  is  a  member  of  the  partnership, 
renders  these  services  as  president  of  the  Company,  and  now  sues  the 
Company  to  recover  for  the  services.    Can  he  recover?    If  so,  what  per 
cent  of  his  claim  ? 

6.  Suit  is  brought  against  the  subscribers  to  the  stock  of  a  de- 
fectively organized  corporation  to  recover  money  borrowed  by  an  offi- 
cer of  the  same  upon  the  theory  that  the  subscribers  were  partners. 
The  organizers  had  acted  in  good  faith  but  had  not  fully  complied 
with  the  requirements  of  the  incorporative  statute.    What  holding? 

Thursday:     Review  paragraphs  13  to  21,  inclusive. 
Read  paragraphs  22  to  36,  inclusive. 

Questions. 

7.  Why  may  not  a  corporation  become  a  member  of  a  partner- 
ship? 

8.  A  &  B,  a  co-partnership,  sued  out  an  attachment  against  C 
&  D,  co-partners.    C  was  a  minor  at  the  time  the  firm  became  indebted 
to  the  plaintiff,  but  immediately  on  reaching  his  majority  and  before 
the  attachment  was  sued  out,  he  wrote  to  A  &  B  disaffirming  his  con- 
tracts.    C  files  a  plea  in  abatement.     D  fails  to  plead.     Trial  court 
abated  the  attachment  and  released  the  property  attached.     Plaintiff 
appeals.     What  judgment? 

9.  P  sells  lumber  to  W  &  S,  W  having  informed  P  that  W  and 
S  had  formed  a  co-partnership.     As  a  matter  of  fact,  W  and  S  were 
not  partners,   although   S   allowed  W  to   introduce    him   to   various 
trades  people  in  the  neighborhood  as  his  partner  and  even  allowed 
him  to  sign  their  joint  names  on  drafts,  of  which  fact  P  was  aware. 
There  was  some  evidence  that  S  after  the   goods  in  question  were 
bought  had  ratified  the  purchase.     P  sues  W  &  S  as  co-partners  for 
the  lumber.    Can  he  recover? 

SECOND  WEEK. 

Monday:     Review  paragraphs  22  to  36,  inclusive. 
Read  paragraphs  37  to  49,  inclusive. 

Questions. 

10.  In  what  two  instances  does  the  action  of  the  majority  of  the 
members  of  a  partnership  fail  to  bind  the  minority? 

11.  A,  B  and  C  are  equal  partners  and  engage  in  the  business 
of  locating  and  developing  mines.     On  March  19,  1878,  B  &  C,  who 
were  doing  the  active  field  work,  bought  out  A's  interest  in  the  three 


PARTNERSHIP    AND    CORPORATIONS       19 

mines  acquired  by  the  partnership  for  $400.  On  the  same  day  B  &  C 
were  negotiating  and  did  sell  shortly  thereafter  to  a  third  party,  one 
of  these  mines  for  $1.800.  A  on  discovering  those  facts  brings  his  bill 
in  equity  to  recover  $200  from  B  &  C.  Will  the  bill  lie  ? 

12.  A  and  B  were  engaged  in  a  mercantile  co-partnership  as  equal 
partners  on  July  23,  1911.     They  dissolved,  A  being  committed  to 
wind  up  the  concern.    Thereafter  B  executed  two  notes  to  A  for  $400 
and  $450  respectively.    Judgments  were  recovered  on  these  notes  by 
A.  and  B  brings  his  bill  in  chancery  to  enjoin  their  collection  and  for 
an  accounting.    It  appeared  from  the  testimony  taken  by  the  master, 
that  A  h'ad  expended  over  $2,000  in  paying  debts  of  the  firm,  B  having 
paid  nothing.    A  credited  B  with  payment  of  $850,  1  he  amount  of  the 
tAvo  notes.    Should  the  injunction  be  granted? 

Tuesday:     Review  paragraphs  37  to  49,  inclusive. 
Read  paragraphs  50  to  58,  inclusive. 

Questions. 

13.  Under  what  circumstances  are  partners  agents  of  each  other? 

14.  A,  B  &  Co.,  conducting  a  partnership  business  under  the 
name  of  A,  B  &  Co.,  sold  goods  to  D  &  B.  co-partners.     Before  suit 
was  started  the  partnership  of  A,  B  &  Co.  was  dissolved  and  B  as- 
signed all  his  interest  in  this  account  to  A.     A,  B  &  Co.  sue  D  &  B 
at  law  to  recover  the  amount  due  for  the  goods  sold.    What  judgment? 

15.  Action  brought  by  P  vs.  A,  B,  C  and  D,  partners  as  A  & 
Co.,  on  a  note  signed  by  A  &  Co.  payable  to  X  and  assigned  by  X  to 
P.     The  articles  of  co-partnership  provided  that  A  was  not  to  sign 
the  firm  name  to  any  note  without  B's  consent.    The  note  in  question 
was  signed  by  A  without  B's  consent.     C  acted  as  X's  agent  in  mak- 
ing the  loan  to  A  &  Co.  and  in  securing  the  note.     There  was  no  evi- 
dence that  C  remembered  the  provision  limiting  A's  authority  at  the 
time  he  negotiated  the  loan,  and  it  further  appeared  that  B  had  al- 
lowed A  to  sign  notes  without  his  consent  for  a  long  time  prior  to  the 
execution  of  this  note  without  objection.     Before  the  making  of  the 
note,  B  had  retired  from  the  firm — C  was  to  pay  all  firm's  debts  for 
which  B  would  be  liable,  and  B's  name  was  to  continue  as  a  member  of 
the  firm.    What  judgment? 

Wednesday:     Review  paragraphs  50  to  58,  inclusive. 
Read  paragraphs  59  to  69,  inclusive. 

.  Questions. 

16.  May  the  fraudulent  unauthorized  act  of  one  partner  bind  the 
firm?     Explain  your  answer. 

17.  A  is  indebted  to  P  in  the  sum  of  $2,000.     He  forms  a  part- 
nership with  B,  who  agrees  tn  sissuine  half  of  the  indebtedness.     A  & 
B  as  co-pjirt ners  execute  a  note  to  P.    B  sells  out  to  C,  who  succeeds 
to  all  of  B's  rights  and  liabilities.     A  sells  out  to  D  under  similar 


20  ALBERT    E.    WILSON 

conditions.  C  executes  new  notes  when  the  old  ones  become  due, 
signed  by  C  &  D  and  also  by  A  &  B.  D  dies.  P  sues  his  estate  on 
the  new  notes.  What  judgment  ? 

18.  A  and  B  are  co-partners.    C,  the  husband  of  B,  who  conducts 
the  business  of  the  firm,  A  being  a  non-resident,  causes  the  arrest  of 
P  on  behalf  of  the  firm  under  a  writ  of  ne  exeat.     The  bill  was  dis- 
missed.    C  appeals.     A  then  for  the  first  time  learns  of  the  proceed- 
ing, condemns  C's  action  and  orders  the  appeal  dismissed.     P  brings 
suit  against  A  &  C  for  false  imprisonment  and  malicious  prosecution. 
Is  C  liable? 

Thursday:     Review  paragraphs  59  to  69,  inclusive. 
Read  paragraphs  70  to  80.  inclusive. 

Questions. 

19.  What  must  a  partner  show  to  force  a  court  of  equity  to  dis- 
solve the  partnership  ? 

20.  Defendant  and  one  Hovey  made  a  secret  agreement  by  which 
the  former  was  to  furnish  the  capital  to  run  a  jewelry  business  and  the 
latter  was  to  furnish  the  store,  transact  the  business  with  customers 
in  his  own  name,  and  purchase  additional  goods  in  his  own  name. 
They  were  to  share  the  profits  equally.    Plaintiffs  sold  goods  to  Hovey. 
not  knowing  that  defendant  was  interested  in  the  business.     Later 
they  found  out  defendant's  relationship  to  same  and  sued  to  recover 
the  sale  price  of  the  goods.     Was  defendant  liable? 

21.  The  representatives  of  a  deceased  partner  attempted  to  have  a 
receiver  appointed  to  conduct  the  business  as  against  the  surviving 
partner.     No  showing  was  made  of  mismanagement  or  improper  con- 
duct on  the  part  of  the  surviving  partner.    What  decree? 

THIRD  WEEK. 

Monday:     Review  paragraphs  70  to  80,  inclusive. 
Read  paragraphs  81  to  93,  inclusive. 

Questions. 

22.  Explain  the  points  of  difference  and  of  similarity  between 
joint  stock  companies  and  partnerships. 

23.  A  &  B,  co-partners,  become  insolvent.    Both  are  adjudicated 
bankrupt  by  separate  petitions.    X  is  a  creditor  on  a  note  of  A  &  B. 
X  proves  his  claim  against  the  estate  of  A,  whose  estate   consists 
mainly  of  partnership  assets,  he  having  carried  on  the  business  alone 
for  some  time  prior  to  bankruptcy,  and  receives  a  dividend.     X  then 
seeks  to  prove  up  as  to  the  balance  against  B's  estate.    When,  if  at  all, 
should  X  be  permitted  to  prove  up  against  B  ? 

24.  A,  B,  C  and  D  formed  a  partnership  for  the  purpose  of  buy- 
ing a  drove  of  cattle  and  selling  the  same.    A  furnished  all  the  money. 

'They  were  to  share  equally  in  profits  and  losses.    C  sold  some  of  the 


PARTNERSHIP    AND    CORPORATIONS       21 

cattle  and  deposited  the- money  with  B  to  be  turned  over  to  A,  who 
had  taken  all  the  rest  of  the  cattle  to  New  Orleans  and  sold  them.  C 
before  A's  return  went  to  B  and  asked  him  for  $500  out  of  the  fund 
deposited  by  him  with  B  to  purchase  some  sheep,  which  B  gave  him. 
On  A's  return,  C  told  him  of  this  transaction  and  received  no  reply. 
There  was  no  understanding  between  A,  B,  C  and  D  as  to  purchase  of 
sheep.  A  sues  B  for  the  $500.  Can  he  recover? 

Tuesday:     Review  paragraphs  81  to  93,  inclusive. 
Read  paragraphs  1  to  6,  inclusive. 

Questions. 

25.     Explain  the  theory  of  a  corporate  entity. 
-26.     What  is  a  private  corporation? 

27.  In  point  of  time  how  far  back  has  the  idea  of  corporate  per- 
sonality been  traced? 

Wednesday:     Review  paragraphs  1  to  6,  inclusive. 
Read  paragraphs  7  to  12.  inclusive. 

Questions. 

28.  The  Constitution  of  the  United  States  provides  that  the  citi- 
zens of  one  State  shall  be  entitled  to  all  the  privileges  and  immunities 
of  citizens  of  the  several  States.     Does  this  apply  to  corporations? 
WThy? 

29.  Defendant,  a  private  corporation,  owning  coal  beds  adjacent 
to  plaintiff's  land,  placed  one  Stewart  as  mine  boss  in  charge  of  a  gang 
of  .miners  and  defendant's  president  warned  Stewart  to  be  careful  not 
to  let  the  men  get  across  the  dividing  line  into  plaintiff's  coal  beds. 
The  miners  did  cross  said  line,  however,  and  actually  removed  coal 
from  plaintiff's  beds.     Plaintiff  sued  in  tort  in  an  action  of  trespass 
and  recovered  a  judgment  against  both  defendant  and  Stewart.     On 
appeal  defendant  insisted  that  it  should  not  be  liable  since  the  corpora- 
tion itself  did  not  do  the  act  of  trespass  and  could  not  be  held  liable 
for  the  negligence  of  Stewart,  which  negligence  never  was  authorized 
or  approved.    Was  the  defense  good? 

30.  Two  individuals  owning  all  the  stock  of  a  corporation  exe- 
cuted a  mortgage  upon  property  belonging  to  the  corporation  and 
signed  their  individual  names  to  the  mortgage  deed.     Complainant 
mortgagee  brought  a  bill  against  the  corporation  to  foreclose   the 
mortgage.    What  decree? 

Thursday:     Review  paragraphs  7  to  12,  inclusive. 
Read  paragraphs  13  to  21,  inclusive. 

Questions. 

31.  Kxplain    the    similarity   and   difference    between   joint   stock 
companies  and 


22  ALBERT    E.    WILSON 

32.  The  officers  and  directors  of  defendant  railway  company  con- 
tracted to  purchase  as  a  speculation  the  stock,  bonds,  and  floating 
debts  of  another  insolvent  railway  corporation  together  with  rolling 
stock  which  defendant  could  not  use  on  its  own  road.    Defendant  had 
no  charter  authority  to  make  or  carry  out  such  a  contract  of  purchase. 
Complainant,  a  single  stockholder,  filed  a  bill  in  equity  to  enjoin  de- 
fendant and  said  directors  and  officers  from  carrying  out  said  con- 
tract.   What  decree? 

33.  Complainant,  a  stockholder  of  a  corporation,  filed  a  bill  in 
equity  in  his  own  name  against  defendant  to  enjoin  defendant  from 
publishing  defamatory  statements  about  the  title  to  real  estate  owned 
by  said  corporation.    Said  defamatory  statements  amounted  to  a  slan- 
der of  title  of  said  real  estate  and  the  threatened  injury  therefrom 
could  not  be  compensated  for  by  damages  in  a  suit  at  law.    What  dis- 
position should  be  made  of  complainant's  suit? 

FOURTH  WEEK. 

Monday:     Review  paragraphs  13  to  21,  inclusive. 
Read  paragraphs  22  to  34,  inclusive. 

Questions. 

34.  Why  has  the  method  of  creating  corporations  by  special  act 
of  the  legislature  been  superseded  by  the  method  by  general  act? 

35.  The  constitution  of  Georgia  extended  power  to  the  legislature 
to  grant  corporate  powers    and    privileges    to    telegraph    companies. 
Plaintiff  telegraph  company  assumed  to  act  as  a  private  corporation 
and  organized  itself  under  a  charter  granted  by  the  superior  court 
of  a  certain  county.    No  statute  had  been  passed  by  the  legislature  au- 
thorizing said  court  to  grant  said  charter.     Plaintiff  company  sued, 
as  a  corporation  and  by  its  corporate  name  and  without  making  the 
persons  interested  in  said  company  parties,  to  recover  in  an  action 
of  tort  against  defendant  for  injury  to  cables  laid  by  plaintiff  com- 
pany in  a  certain  river.     Should  plaintiff  recover? 

36.  A  statute  created  what  it  termed  a  "joint  stock  association" 
and  gave  it  a  distinctive  artificial  name  by  which  it  could  make  con- 
tracts; a  statutory  authority  to  sue  and  be  sued  in  the  name  of  the 
officers  as  representing  the  association ;  a  recognition  of  the  association 
as  an  entity  distinct  from  its  members,  by  allowing  them  to  sue  it  and 
be  sued  by  it ;  and  made  provision  for  its  perpetuity  by  transfers  of 
its  shares.    Was  the  language  of  the  statute  sufficient  to  create  a  "cor- 
poration" within  the  meaning  of  a  statute  imposing  a  tax  on  corpora- 
tions and  was  said  association's  plea  that  it  was  only  a  partnership 
good  against  an  attempt  to  collect  said  tax? 

Tuesday:     Review  paragraphs  22  to  34.  inclusive. 
Read  paragraphs  35  to  45.  inclusive. 


PARTNERSHIP    AND    CORPORATIONS       23 

Questions. 

37.  What  is  the  double  character  of  a  corporate  charter  from  a 
purely  legal  point  of  view? 

38.  A  state  constitution  gave  the  legislature  power  to  govern  the 
creation  of  private  corporations.     The  legislature  passed  an  act  con- 
ferring upon  the  circuit  court  of  each  county  the  right  to  receive  peti- 
tions for  incorporation  and  to  en'ter    decrees    creating    corporations 
where  the  court  found  that  the  powers,  duties,  liabilities,  rights  or 
privileges  assumed  for  the  prospective  corporation,  or  the  provisions 
contained  in  a  petition,  were  not  repugnant  to  the  laws  of  the  state 
and  of  the  United  States.    Said  court  was  vested  with  discretion  to  de- 
termine whether  in  a  given  case  a  decree  of  incorporation  should  be 
granted.    Was  said  act  of  the  legislature  valid  and  was  a  corporation 
created  by  a  decree  of  a  circuit  court  thereunder  a  valid  corporation 
against  a  proceeding  to  question  its  validity  brought  by  the  state? 

39.  Defendants  filed  an  application  for  incorporating  an  amuse- 
ment company  under  the  laws  of  West  Virginia.     The  secretary  of 
state  of  West  Virginia  duly  issued  a  certificate  of  incorporation.    The 
West  Virginia  statute  provided  for  the  holding  of  meetings  of  the 
corporation,  including  the  first  general  meeting  for  purposes  of  organi- 
zation, outside  of  the  state  and  also  provided  for  keeping  the  principal 
office  of  the  corporation  in  any  state  or  territory  of  the  United  States. 
After  said  certificate  was  received,  a  person  acted  as  president  of  the 
company,  although  it  did  not  appear  how  or  when  he  was  elected.    He 
was  a  resident  of  New  York.    Another  person  acted  as  treasurer  of  the 
company  and  also  resided  in  New  York.     Said  treasurer  kept  a  check 
book  and  made  disbursements  for  the  company  by  check,  received 
what  money  came  to  it,  and  put  it  in  the  bank.    No  by-laws  were  en- 
acted.    The  treasurer  once  had  charge  of  the  stock  book  of  the  com- 
pany, though  at  the  time  of  the  trial  he  did  not  know  where  it  was. 
Plaintiff  sued  defendants  as  individuals  on  the  ground  that  no  incor- 
poration resulted  since  defendants  did  not  accept  their  charter.     Were 
defendants  liable  as  individuals  on  said  ground? 

Wednesday:     Review  paragraphs  35  to  45,  inclusive. 
Read  paragraphs  46  to  57,  inclusive. 

Questions. 

40.  What  constitutes  tlie  charter  of  a  corporation  incorporated 
under  a   ireneral  act  of  the  legislature' 

41.  A   general  act   authori/ed  persons  to  "associate  together  for 
the  purpose  of  building  and  repairing  steamboats    and    other    water 
crafts,  and  carrying  on   business  usually  connected   with  the' main  ob- 
jects  of  the   corporation   aforesaid."      Defendant,    incorporated  under 
said  act,  attempted   to   purchase,   own.   and   use  a    wharf-boat  for  the 
purpose   of   receiving,   storing,   and    forwarding  or   delivering   general 
merchandise  or  freight.     The  state  brought   ipio  warranto  proceedings 


24  ALBERT    E,    WILSON 

to  oust  defendant  .from  exercising  said  function.    Should  the  state  suc- 
ceed in  said  ouster  suit? 

42.  Prior  to  the  formation  of  plaiiitiff  as  a  corporation  "defendant 
signed  an  agreement  which  stated  that  it  was  proposed  to  publish  a 
certain  newspaper  and  in  furtherance  of  such  purpose  to  organize  a 
corporation  with  a  specified  capital  stock  to  take  over  said  newspaper 
for  which  shares  were  to  be  issued  and  that  the  remaining  shares 
should  be  offered  for  subscription.  "The  agreement  then  recited  :  "We, 
the  undersigned,. hereby  subscribe  for  the  number  of  shares  set  opposite 
our  names."    The  corporation  was  duly  formed  and  tendered  defend- 
ant, who  signed  said  agreement,  the  shares  set  opposite  his  name.    De- 
fendant refuse'd  to  pay  for  same.    Was  plaintiff  entitled  to  recover  the 
full  amount  of  said  stock  subscription  or  only  damages  for  breach  of 
agreement  to  take  stock? 

Thursday:     Review  paragraphs  46  to  57,  inclusive. 
Read  paragraphs  58  to  72.  inclusive. 

Questions. 

43.  What  four  facts  must  be  proved  to  establish  a  corporation 
de  facto? 

44.  Defendant  subscribed  to  the  stock  of  plaintiff  manufacturing 
company  prior  to  the  incorporation  of  said  company.     His  stock  sub- 
scription was  solicited  by  an  agent  who  represented  that  certain  prop- 
erty to  be  acquired  by  the  company  would  pay  6  per  cent  on  the  capi- 
tal stock  for  the  first  year,  and  that  thereafter  the  company  could  de- 
termine whether  it  would  erect  a  certain  building  or  not.    Defendant 
was  familiar  with  said  property  and  was  in  as  good  a  position  to  judge 
of  the  success  of  the  enterprise  and  the  profits  to  be  derived  therefrom 
as  said  agent.     There  was  no  evidence  that  defendant  placed  faith  in 
said  representations,  which  were  false,  and  no  proof  that  the  fact  of 
the  value  of  said  property  was  material  to  the  success  of  the  enterprise. 
Plaintiff  corporation  sued  to  recover  on  said  subscription.    Defendant 
sought  to  void  same  on  the  ground  of  fraudulent  misrepresentations 
by  said  agent.     Was  the  defense  good? 

45.  A  group  of  persons  organized  and  wrent  through  the  steps 
of  incorporating  a  society  to  oppose  the  enforcement  of  liquor  laws 
enacted  by  the  state.    No  law  was  on  the  statute  books  providing  for 
such  a  corporation.     The   society  sued  as  a  corporation  to  recover 
money  loaned  to  defendant.     Defendant  rested  its  defense  solely  on 
the  ground  that  plaintiff  was  not  a  corporation.    What  judgment? 

FIFTH  WEEK. 

Monday:     Review  paragraphs  58  to  72,  inclusive. 
Read  paragraphs  73  to  85,  inclusive. 


PARTNERSHIP    AND    CORPORATIONS       25- 

Questions. 

46.  What  was  decided  by  the  famous  Dartmouth  College  case? 

47.  A  stockholder  filed  a  bill  in  equity  to  compel  the  directors  of 
defendant  corporation  to  declare  a  dividend.    The  directors  themselves 
were  the  largest  holders  of  the  stock  in  said  corporation  and  testified 
that  they  were  anxious  to  receive  dividends  whenever  they  could  be 
paid  without  injury  to  the  business.    They  had  not  diverted  or  misap- 
plied any  funds  of  the  corporation.     Their  management  had  been  ju- 
dicious and  they  had  accumulated  a  surplus  of  net   earnings  from 
year  to  year.     No  evidence  was  offered  that  defendant  directors  had 
not  acted  in  good  faith.    "What  decree? 

48.  Defendant  railroad  was  engaged  in  extending  its  line,  and 
the  president  of  same  was  actively  employed  in  overseeing  said  work 
of  extension.    Plaintiff 'sued  in  an  action  of  assumpsit  alleging  that  de- 
fendant contracted  to  furnish  him  a  large  quantity  of  iron  to  be  car- 
ried by  him  from  Rock  Island  to  Burlington,  said  iron  to  be  used  for 
construction  purposes.     To  prove  the  terms  of  said  contract  plaintiff 
offered  in  evidence  the  statements  made  by  said  president  to  plaintiff. 
Was  the  defendant  bound  by  said  statements  so  as  to  render  them  ad- 
missible in  evidence? 

Tuesday:     Review  paragraphs  73  to  85,  inclusive. 
Read  paragraphs  86  to  95,  inclusive. 

Questions. 

49.  Name  five  different  designations  of  corporate  stock  and  ex- 
plain the  meaning  of  each. 

50.  A  stock  certificate  stating  that  plaintiff  owned  80  shares  of 
the  "guaranteed  capital  stock"  of  defendant  corporation  read:  "Said 
stock  is  entitled  to  dividends  at  the  rate  of  10  per  cent  per  annum, 
payable  semi-annually  on  the  first  day  of  June  and  December  in  each 
year.    The  payment  of  dividends  as  aforesaid  is  hereby  guaranteed." 
Plaintiff  sued  in  an  action  at  law  as  a  creditor  to  recover  dividends  on 
the  strength  of  said  certificate.     Defendant  and  its  directors  had  re- 
fused to  declare  the  dividend  specified  in    said    certificate.      Should 
plaintiff  recover? 

51.  Defendants  as  members  of  an  unincorporated  oil  company 
owned  some  gas  wells  worth  $500,000.    They  organized  with  a  capital 
stock  of  $500.000,  all  of  which  stock  they  themselves  subscribed.    They 
then  borrowed  $500,000  on  their  note  from  a  bank.     Said  $500,000 
w;is  checked  out  by  them  and  paid  over  to  the  said  corporation  in  pay- 
ment of  the  stock  subscriptions  of  defendants.     They  then  conveyed 
said  gas  wells  to  said  corporation  which  paid  to  them  by  check  for 
said  wells  the  sum  of  $500,000.     The  receiver  sought  to  collect  said 
stock  subscriptions  against  defendants.     The  evidence  indicated  that 
said  wells  were  reasonably  worth  the  sum  of  $500,000  and  that  defend- 
ants acted  in  good  faith.    Were  defendants  liable  in  said  suit  brought 
on  behalf  of  creditors  of  said  corporation? 


26  ALBERT    E.    WILSON 

Wednesday:     Review  paragraphs  86  to  95,  inclusive. 
Read  paragraphs  96  to  106,  inclusive. 

Questions. 

52.  What  are  proxies?    May  proxies  be  used  at  directors'  meet- 
ings ?    Why  ? 

53.  The  president  of  a  corporation  by  its  charter  and  by-laws 
had  no  power  to  convey  the  real  estate  of  the  corporation  without  the 
authority  of  the  stockholders.    A  meeting  of  the  stockholders  was  con- 
vened and  a  vote  taken  authorizing  said  president  to  deed  said  real 
estate  of  the  corporation  to  defendant's  predecessor  in  title.     To  cer- 
tain shareholders  no  notice  of  said  meeting  was  given.    Was  defend- 
ant in  a  suit  in  trespass  to  said  realty  entitled  to  set  up  the  fact  of  said 
conveyance  to  his  predecessor  in  title  as  a  valid  defense  against  plain- 
tiff who  held  title  under  said  corporation?     Neither  the  charter  nor 
by-laws  nor  any  statute  contained  any  provision  as  to  notice  of  share- 
holders' meetings. 

54.  An  officer  of  defendant  lumber  company  was  urgently  pressed 
by  a  creditor  to  pay  debts  due  from  defendant  to  said  creditor.     He 
called  upon  three  of  the  five  directors  of  defendant  who  individually 
authorized  him  to  convey  the  property  of  the  company  to  said  cred- 
itor in  payment  of  said  debts.    The  other  two  directors  were  not  con- 
sulted and  the  said  three   directors  consulted  met  informally   at   a 
place  other  than  the  regular  meeting  place  of  the  corporation  and 
gave  to  said  officer  their  individual  consent  to  make  said  transfer.    No 
record  of  said  meeting  was  kept.    Said  officer  had  no  power  to  make 
said  transfer  without  being  authorized  by  the  board  of  directors.    Did 
said  creditor  to  which  said  officer  conveyed  said  property  of  the  cor- 
poration obtain  a  good  title  thereto? 

Thursday:     Review  paragraphs  96  to  106,  inclusive. 
Read  paragraphs  107  to  116,  inclusive. 

Questions. 

55.  What  is  meant  by  the  "implied  powers"  of  a  corporation? 

56.  A  corporation  had  by  its  charter  implied  authority  to  incur 
debts  in  the  transaction  of  its  business.     In  carrying  on  its  ordinary 
affairs  it  incurred  a  debt  and  gave  a  promissory  note  in  connection 
therewith.     Defendant   assumed   the   debts   of  said   corporation   and 
received  from  it  a  transfer  of  its  property.     Plaintiff  sued  as  the 
holder  of  said  note  to  collect  same.    Was  said  note  valid  so  as  to  ren- 
der defendant  liable? 

57.  One  Stockwell,  a  stockholder  in  defendant  corporation,  be- 
came indebted  to  plaintiff  bank   for  money   loaned   by  plaintiff  to 
Stockwell  to  enable  him  to  speculate  in  the  stock  market.    To  satisfy 
plaintiff  bank,  Stockwell  drew  a  bill  of  exchange  on  defendant,  which 
accepted  same.     Stockwell  turned  said  bill  over  to  plaintiff,  which 
credited  Stockwell  on  his  account  to  the  amount  of  said  bill.     Under 


PARTNERSHIP    AND    CORPORATIONS       27 

the  law  of  New  York,  where  the  case  arose,  plaintiff  did  not  become 
a  bona  fide  purchaser  of  said  bill  merely  by  crediting  Stockwell  in 
said  manner  on  his  own  account.  Defendant  was  engaged  in  the  busi- 
ness of  manufacturing  and  selling  machines.  It  accepted  said  bill  in 
order  to  confer  a  favor  upon  Stockwell.  Plaintiff  sued  defendant  on 
said  bill  as  the  acceptor  of  same.  Was  defendant  liable? 

SIXTH  AVEEK. 

Monday:     Review  paragraphs  107  to  116,  inclusive. 
Read  paragraphs  117  to  323,  inclusive. 

Questions. 

58.  Name  the  principal  crimes  created  by  the  anti-trust  act  of 
the  United  States  Congress  of  1890  known  as  the  Sherman  Act. 

59.  The  X  Co.,  a  R.  R.  corporation,  entered  into  a  contract  with 
A  whereby  they  purchased  a  steamboat  and  ran  the  same  under  the 
name  of  the  Central  Line  of  Boats.    P,  a  passenger  on  this  boat,  was 
injured  due  to  the  careless  management  of  the  steamer  by  the  crew, 
and  he  sues  the  X  Co.  and  A  in  trespass  to  recover  for  the  injuries 
received.     Can  he  recover? 

60.  X  Ry.   Co.,  a  street  car  company  in  the  City  of  Chicago, 
enters  into  a  contract  with  P,  a  property  owner  along  its  right  of 
way,  not  to  build  more  than  a  single  track  railway  along  Wabash 
Ave.  from  Lake  to  Madisqn  Sts.,  a  distance  of  two  blocks,  and  in  the 
event  that  X  Co.  does  build  more  than  a  single  track  in  violation  of 
its  contract,  it  is  to  pay  P  $100,000  as  liquidated  damages.     X  Co. 
builds  more  than  one  track  in  violation  of  its  contract.     P  sues  on 
the  bond  for  $100,000.    Can  he  recover? 

•        Tuesday:     Review  paragraphs  117  to  123,  inclusive. 
Read  paragraphs  124  to  131,  inclusive. 

Questions. 

61.  What  is  meant  by  a  "holding  company"? 

62.  The  stockholders  of  seven  corporations  situated  in  various 
parts  of  the  country  enter  into  an  agreement  whereby  the  majority 
of  the  stock  of  the  seven  corporations  was  transferred  to  a  board  of 
nine  trustees  who  were  authorized  to  purchase  the  stock,  bonds,  or 
property  of  any  corporation  engaged  in  a  certain  business  and  to  issue 
trust  certificates  therefor;   to  organize  companies  to  carry  on  such 
business,  and  to  receive  the  dividends  on  all  stock  and  the  interest 
on  all  bonds  held  by  them,  and  after  paying  the  expenses  of  the  trust, 
to  declare  dividends  on  the  trust  certificates.    X  Co.  became  a  member 
of  this  trust  and  in  so  doing  agreed  to  discontinue  a  certain  branch  of 
its  business,  for  which  it  received  a  certain  sum  from  the  trust.    X  Co. 
violates  this  agreement ;  the  trustees  file  a  bill  to  enjoin  X  Co.  from 
violating  their  agreement.    X  Co.  demurs.     What  judgment? 


28  ALBERT    E.    WILSON 

63.  A   and  B,   corporations,   consolidate.     A   corporation   takes 
over  B  Co. 's  assets  and  in  payment  thereof  transfers  a  certain  amount 
of  its  capital  stock  to  the  stockholders  of  B  Co.     P  is  a  creditor  of 
B  Co.  and  brings  this  action  against  A  Co.  for  an  accounting  and  a 
money  judgment.    What  should  the  order  be? 

Wednesday:     Review  paragraphs  124  to  131,  inclusive. 
Read  paragraphs  132  to  145,  inclusive. 

Questions. 

64.  Name  four  requirements  that  by-laws  must  meet. 

65.  Executors  of  a  will  bring  a  bill  in  equity  praying  advice  in 
the  construction  of  the  will  devising  real  estate  to  X  Co.,  a  New  York 
corporation.     The  land  is  located  in  Connecticut,  where  testator  dies 
and  where  this  action  is  brought.  •  The  statute  of  wills  in  New  York 
prohibits  a  corporation  from  taking  property  by  devise.     The  Con- 
necticut statute  does  not.    What  would  you  advise? 

66.  At  the  annual  meeting  of  X  Co.  a  resolution  was  passed  au- 
thorizing directors  to  sell  land  of  the  company  and  receive  stock  iu 
part  payment.     The   directors   advertise   the   sale   of  the   company's 
lots  to  be  paid  for  one-half  in  cash  and  one-half  in  stock  of  X  Co. 
P,  a  stockholder  of  X  Co.,  files  a  bill  to  enjoin  X  Co.  from  selling 
land  and  receiving  its  own  stock  in  part  payment.    Will  the  bill  lie? 

Thursday:     Review  paragraphs  132  to  145,  inclusive. 
Read  paragraphs  146  to  153,  inclusive. 

Questions. 

67.  What  is  meant  by  the  expression  "ultra  vires"? 

68.  P,  a  broker,  bought  cotton  in  his  own  name  at  the  request  of 
D  Co.,  a  banking  corporation  having  no  power  to  buy  cotton.     The 
cotton  was  never  delivered  to  D  Co.  and  title  never  passed  to  it.     P 
sues  for  commissions  and  for  money  claimed  to  have  been  expended 
for  D  Co.  on  the  purchase  and  sale  of  the  cotton.     What  judgment? 

69.  X  Transit  Co.  by  an  act  of  the  legislature  was  given  until 
July,  1876,  to  organize  and  build  at  least  a  mile  of  its  railway  or  its 
powers  and  rights  should  be  deemed  forfeited  and  terminated.    X  Co. 
did  not  build  any  portions  of  its  road  until  June,  1878,  when  it  pro- 
ceeded to  build  in  the  City  of  B,  which  refused  to  allow  it  to  build. 
X  Co.  files  a  bill  to  restrain  the  City  of  B  from  interfering  with  it. 
Should  the  injunction  be  granted  ? 

SEVENTH  WEEK. 

Monday:     Review  paragraphs  146  to  158.  inclusive. 
Read  paragraphs  159  to  171,  inclusive. 

Questions. 

70.  Explain  how  the  State  can  control  a  corporation  through  the 
exercise  of  the  "police  power." 


PARTNERSHIP    AND    CORPORATIONS       29 

71.  A  New  York  corporation  doing  business  in  New  York  was 
assessed   on  certain  property   consisting   of  steamboats   which   were 
being  built  for  it  outside  of  the  State.     The  corporation  objected  to 
assessing  this  property,  claiming  same  was  exempt  as  being  without 
the  State.    Is  the  objection  well  taken? 

72.  X  Co.  was  organized  for  the  purpose  of  carrying  on  a  manu- 
facturing and  mechanical  business  under  an  act  of  the  state  legisla- 
ture passed  in  1849.     In  1884  the  state's  attorney  filed  an  informa- 
tion in  the  nature  of  a  quo  warranto  against  X  Co.   alleging  that 
the  incorporators  never  intended  and  in  fact  never  did  carry  on  the 
business  set  forth  in  the  act  of  incorporation,  but  carried  on  a  totally 
different  business,  from  the  date  of  its  organization  to  the  present 
time,  and  that  only  a  nominal  portion  of  its  capital,  if  any,  was  ever 
paid  in.     In  1853  the  legislature  passed  an  act  amending  the  act  of 
1849  whereby  it  in  effect  permitted  X  Co.  to  carry  on  the  business 
they  were  actually  engaged  in.    X  Co.  demurred.    Should  the  demurrer 
be  sustained? 

Tuesday:     Review  paragraphs  159  to  171,  inclusive. 
Read  paragraphs  172  to  180,  inclusive. 

Questions. 

73.  When  may  a  corporation  extend  its  field  of  business  into  a 
foreign  State  without  obtaining  a  license  to  do  business  in  such  for- 
eign State  ? 

74.  A  state  statute  provides  that  no  foreign  insurance  company 
shall  do  business  in  the  State  until  it  has  complied  with  certain  re- 
quirements.    It  further  provides  that  no  agent  of  any  such  company 
shall  transact  any  business  until  it  has  received  a  certificate  of  author- 
ity from  the  Auditor  of  Public   Accounts.     D,   in   violation   of  the 
statute,  secured  insurance  for  Y  in  X  Co.,  a  foreign  corporation  which 
had  not  complied  with  the  statute.    The  statute  provides  a  penalty  of 
$500  for  violation  of  this  act.     The  attorney  general  brings  a  penal 
action  to  recover  this  penalty.    Will  the  action  lie? 

75.  A  and  B  promote  a  corporation  for  the  purpose  of  dealing 
in  land.     They  propose  with  certain  prospective  stockholders  to  buy 
certain  lands.    A  and  B  at  the  time  had  bought  some  of  the  lands  and 
had  options  on  other  pieces.    They  sold  the  land  to  the  corporation  at 
a  price  greater  than  it  cost  them.     P  becomes  a  stockholder  in  this 
corporation;  on  discovering  these  facts  he  asks   the  corporation  to 
bring  suit  to  recover  back  the  difference  between  the  price  A  and  B 
paid  for  the  land  and  the  price  charged  by  them  to  the  corporation. 
The  corporation  refuses  to  bring  suit  and  so  he,  P,  starts  suit  in  his 
own  name,  setting  up  these  facts.    What  judgment? 

SEVENTH  WEEK. 

Wednesday:     Review  paragraphs  172  to  180,  inclusive. 
Read  paragraphs  181  to  199,  inclusive. 


30  ALBERT    E.    WILSON 

Questions. 

76.  Under  what  circumstances  is  an  officer  of  a  corporation  en- 
titled to  draw  a  salary  ? 

77.  A  and  B  are  directors  in  X  Railroad  Co.    They  make  a  con- 
tract in  December,  1869,  with  Y  Co.  whereby  Y  Co.  is  to  assist  in  the 
building  of  the  X  Railroad.    This  contract  was  ratified  by  a  meeting  of 
the  stockholders   on  June  7,   1870.     In  September,    1870,   A   and   B 
become  members  of  Y  Co.     There  is  no  evidence  that  the  contract 
was  not  a  fair  and  equitable  one  for  both  companies.     P,  a  stock- 
holder in  X  Co.,  files  his  bill  asking  that  all  the  profits  made  by  A 
and  B  under  the  contract  be  paid  over  to  X  Co.    Is  P  entitled  to  this 
relief? 

78.  A,  a  director  of  X  Co.,  was  elected  by  the  board  of  directors 
to  act  as  treasurer  of 'the  company,  no  provision  being  made  for  his 
compensation.    He  served  for  about  five  years  and  at  the  end  of  that 
time  a  warrant  was  drawn  on  the  company's  treasury  for  $4,000  in 
payment  for  his  services.    He  sues  X  Co.  on  this  warrant.    What  judg- 
ment? 

Thursday:     Review  paragraphs  181  to  199,  inclusive. 
Read  paragraphs  200  to  212,  inclusive. 

Questions. 

79.  When  and  how  may  dividends  be  declared? 

80.  Defendant  corporation  by  a  legal  vote  of  its  directors  de- 
clared a  dividend  from  profits  earned,  made  the  same  payable  with- 
out interest  at  such  time  as  might  be  directed  by  the  board,   and 
ordered  the  amount  to  be  placed  pro  rata  to  the  credit  of  the  stock- 
holders upon  its  books.     Later  the  directors,  fearing  they  would  be 
pinched  for  funds  in  running  the  corporation's  business,  declined  to 
pay  plaintiff  stockholder  his  share  of  the  dividend  declared.     Plain- 
tiff sued  the  corporation  to  recover  said  share.    What  result  ? 

81.  One  Laughton,  the  owner  of  a  share  of  stock  in  a  corpora- 
tion, sold  the  same  to  one  Robinson,  endorsing  it  in  blank,  but  keeping 
it  in  his  safety  deposit  box.    No  transfer  of  the  share  was  ever  made 
on  the  books  of  the  corporation.     Later  a  friend  of  Laughton,  who 
had  access  to  said  box,  stole^he  share  and  turned  it  over  to  one  Lee, 
an  innocent  purchaser  thereof.    Who  was  entitled  to  the  share  ? 

EIGHTH  WEEK. 

Monday:     Review  paragraphs  200  to  212,  inclusive. 
Read  paragraphs  213  to  231,  inclusive. 

Questions. 

82.  When   may   a   creditor  interfere   in   the   management   of   a 
corporation  ? 


PARTNERSHIP    AND    CORPORATIONS       31 

83.  One  Ingraham  was  a  stockholder  in  a  corporation  engaged  in 
running  a  hotel  and  from  time  to  time  advanced  money  to  the  cor- 
poration and  received  promissory  notes  therefor.     At  a  time  when 
said  indebtedness  amounted  to  some  $22,000,  the  corporation  was  also 
indebted  to  some  thirty  other  persons  for  supplies  and  labor  in  the 
sum  of  $10,860.     At  said  time,  with  the  unanimous  consent  of  the 
stockholders,  all  the  hotel  property  subject  to  a  chattel  mortgage  was 
transferred  to  Ingraham,  who  agreed  to  pay  said  mortgage.  Said  trans- 
fer was  made  bona  fide  as  a  payment  of  the  indebtedness  to  Ingraham. 
Did  the  other  creditors  have  a  right  to  object  to  said  transfer  to 
Ingraham  and  to  demand  that  the  property  be  subjected  to  the  pay- 
ment of  the  debts  due  them  ? 

84.  The  directors,   officers,   and  stockholders   of  X  corporation 
organized  Y  corporation  and  then  secured  the  transfer  to  Y  of  all 
the  assets  belonging  to  X.    At  the  time  of  the  transfer  the  said  per- 
sons knew  of  complainant  creditor's  claim,   but  made   no  provision 
for  the  payment  of  same  out  of  the  property  transferred  to  Y,  nor  did 
Y  assume  the  obligation  of  paying  said  claim.     Complainant  filed  a 
bill  to  enjoin  Y  from  disposing  of  said  property  and  to  subject  same 
to  payment  of  his  judgment  founded  on  said  claim.    What  decree? 


f  j  ^^ 

aulora 


PAMPHLET  BINDER 

"  Syracuse,  N.  Y. 

— —    Stockton,  Call/. 


